I’ve seen a few stories and tweets saying that a conservative think-tank accidentally proved that single-payer healthcare will save Americans a lot of money. They’re talking about a working paper released by Charles Blahous at the conservative Mercatus Center. The dumbest story I’ve found so far is from Matt Bruenig at Jacobin magazine:
The US could insure 30 million more Americans and virtually eliminate out-of-pocket health care expenses while saving $300 billion in the process, according to a new report about Medicare for All released by the libertarian Mercatus Center.
Bruenig tries to explain the study this way:
Since the federal government takes on nearly all health spending under Medicare for All, federal health expenditures will necessarily go up a lot, $32.6 trillion over the ten-year period according to Blahous. But this is more of an accounting thing than anything else: rather than paying premiums, deductibles, and co-pays for health care, people will instead pay a tax that is, on average, a bit less than they currently pay into the health care system and, for those on lower incomes, a lot less.
This misses the point. That the Medicare for All (M4A) plan will increase government spending by $32.6 trillion over 10 years is not “more of an accounting thing than anything else.” It’s a sizeof-government thing. Under M4A, the government would take control of $32.6 trillion in healthcare spending that would otherwise have been controlled by the people who actually earned that $32.6 trillion. It’s a huge increase in the size of government.
That’s not what makes Bruenig’s piece dumb, however. The is:
Blahous starts with current projections about how much the country will spend on health care between 2022 and 2031. From there, he adds the costs associated with higher utilization of medical services and then subtracts the savings from lower administrative costs, lower reimbursements for medical services, and lower drug prices. After this bit of arithmetic, Blahous finds that health expenditures would be lower for every year during the first decade of implementation. The net change across the whole ten-year period is a savings of $303 billion.
Bruenig explains what he thinks the conservative think tank was really up to:
But the real game here for Mercatus is to bury the money-saving finding in the report’s tables while headlining the incomprehensibly large $32.6 trillion number in order to trick dim reporters into splashing that number everywhere and freaking out.
Bruenig doesn’t say where he gets his figure of $303 billion in savings. The figure doesn’t appear anywhere in the paper. But I think he gets it from the next-to-last column of Table 2, labeled 2031, which lists Currently projected national health expenditures (NHE) of $7,651 billion and NHE under M4A of $7,348 billion. That is indeed a difference of $303 billion.
But here’s the thing: That’s not a cumulative figure. That’s the figure for a single year. The cumulative total, obtained by adding up all the savings over all 10 years in the table, is actually $2,054 billion. Bruenig has undermined his own point by using a figure that is 1/6 the actual projected savings in the Mercatus study. He’s probably not the best person to be calling out “dim reporters.”
Over at Slate, Jordan Weissmann comes closer to an accurate summary of the study:
Today in political own goals: A prominent conservative think-tanker appears to have published a white paper showing that Bernie Sanders’ plan for a national single-payer health care system could, in theory, reduce American health care spending by as much as $1.4 trillion. Take that, Medicare for all.
This time I have no clue where the $1.4 trillion figure comes from, but elsewhere in the piece Weissmann uses the correct $2.05 trillion figure, so I think we can put this down to a simple editing mistake.
Weissmann still has a bit of a conceptual problem. If you actually read Blahous’s Mercatus working paper, the figure of $2 trillion in healthcare savings is not a result of his study, it’s one of the inputs. For purposes of his paper, Blahous makes the generous assumption that the price caps in the M4A plan will work as intended. He’s trying to estimate how much M4A will increase the federal budget, and he apparently wants to avoid being accused of overestimating the expense because he didn’t account for the price caps.
(It’s as if you and I were arguing about something, and you said to me, “Even assuming what you say is true, there’s still this other problem…” and I immediately started telling everyone you had proven I was right.)
It’s important to remember that the M4A plan isn’t just a single-payer system. For purposes of the Mercatus paper, it consists of at least two other parts:
- Expanded healthcare coverage.
- Capping payments to healthcare providers at Medicare price levels.
Only that second item can save any money. To put it another way, all the savings from the M4A plan come from the assumption that we can reduce the cost of healthcare by forcing healthcare providers to accept low Medicare rates for all patients.
It’s not clear that this will actually work. For a long time, it wasn’t even possible to get doctors to accept Medicare rates for Medicare patients. The Medicare SGR rule was enacted in 1997 to control medical costs, but Congress kept passing so-called “doc fix” bills every year to keep it from fully taking effect. SGR was replaced in 2015 by MACRA rules, which seem to have held up so far, but they only apply to Medicare patients. It’s not clear that this will scale up to everybody.
The reason why is that healthcare providers have built their businesses around a mix of low-paying Medicare patients and higher-paying privately insured patients, and they may not survive the transition to all low-paying patients. It would be like telling a movie theater to offer their senior discount rate to all their customers, or ordering a bar to offer happy hour prices all day long. Even if they didn’t go out of business, they’d have to change the way they ran their operation, perhaps reducing staffing or buying lower quality supplies. For a theater or a bar, that just makes the experience less enjoyable, but when doctors and hospitals start cutting expenses, the results can be more dire.
On the other hand, hospitals and doctors have a lot of money and a lot of political influence, so they may be able to postpone cost cutting indefinitely, or riddle it full of exceptions that turn out to apply to nearly all patients. This would remove the financial pressure to reduce expenses in ways that might hurt patients, but it would also kill off the cost savings of the M4A plan.
Here’s some final food for thought: If the price caps in the M4A plan really will save us a ton of money, do we need to wait until we pass the rest of M4A before taking advantage of them? If we really believe this will work, shouldn’t we pass the price caps right now and worry about the other parts of M4A later? Yet that’s not what anyone is proposing.